There is something new under the sun, or at least relatively so; public benefit corporations.
While most of you are likely at least passingly familiar with corporations and limited liability companies (i.e., “LLCs”), there are, in fact, a whole passel of entity forms recognized in this state.
How about a LLP (limited liability partnership), LLLP (limited liability limited partnership), GP (general partnership), FLP (family limited partnership), various trusts, foreign entities and nonprofit corporations? In fact, there are nearly more forms than you can shake a stick at if, for some reason, shaking sticks at entity types is your sort of thing.
WHAT’S THE POINT?
Why though, you may be asking yourself, bother with an entity — regardless of its type — at all. Why not, say, if your name were, for example Mao Tse-tung and you had say, a kielbasa stand, simply run the place as Mao’s, a sole proprietorship?
Well, there are at least a couple of good reasons.
First of all, if there is more than one person involved, the governance instruments for the entity will lay out who is responsible for what and how the loot (honestly derived of course) is to be divided.
Another is to protect those involved — at least in many entity forms — from certain liabilities. These forms of entities are known as entities of limited liability and include corporations, LLCs, LLPs, LLLPs, and others.
Even if Mao were going it alone, he would likely be wise to form a single-person entity of limited liability to protect himself. One never knows when a kielbasa might explode!
ONLY LIMITED PROTECTION
You’ll note that I said that these are entities of “limited” liability not entities of “no” liability. The entity form — as long as the rules are abided by — will protect those involved from some potential liabilities but not all of them. It is often said that the liabilities protected from by the entity form are “vicarious” liability — liabilities arising from the acts of others.
If for example, you, a member of Mao’s Kielbasas, LLC, are driving the Mao Mobile and decide in a fit of road rage to mow down a competitor’s kielbasa stand, no entity form will protect you from your wrongful and intentional act. In the vernacular, this ain’t no free pass; only some things are protected against. Think of it as a winter coat; it may keep you warm and snuggly if the wind is howling, but if you step in a puddle, your feet are still going to get wet.
ABOUT PUBLIC BENEFIT CORPORATIONS
OK, admitting the analogy is weak. Let’s move on to the main topic here: public benefit corporations. In a tip of the hat to the recent D-Day platinum memorial, as Pogo might have asked, “What is they?”
As beforesaid, they are something new. While corporations have been around (no kidding) in some form or another in this country since at least 1607 (think the Virginia Company which funded the Jamestown colony — the original intent of which was to find and extract gold and silver from the New World which, after a time, took more the form of tobacco than of precious metals), public benefit corporations have been recognized in this state only since late 2013.
Some people have referred to public benefit corporations as “B” corporations (Presumably, as opposed to “C” or “S” corporations, named after subchapters of the IRS Code), other have tagged them as “do-gooder” corporation. (Although wouldn’t “do-better” be more grammatically correct?)
In any event, what they are corporations bent on doing public good (instead of the mere rapacious pursuit of profit!), which are rewarded for their doing-good with certain special legal protections.
Firms that incorporate as public benefit corporations could pursue social responsibility agendas without fear of lawsuits from shareholders. Fourteen other states and the District of Columbia have enacted “B-corp” laws.
Under the usual paradigm, businesses are obliged to maximize economic returns to shareholders. That leaves the firms’ officers potentially liable to legal action if they choose to divert company resources to non-revenue-producing causes. Yikes! With a B-corp, it is, however, different; a public benefit corporation permits — verily encourages! — directors to spin off a little dough to do a little good in this all-too-needy world. A little tithe to save the whales? Why not? And without fear that the shareholders will come head hunting.
HOW TO BECOME A ‘B’
But what must you be to be a B?
Well, first, you’ve got to prove your chops. If the “good” you intend to do is more private benefit than a public one, nah, ya can’t. And shame on you for tryin’. Public benefits are defined as corporate support for artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological causes.
Two-thirds of the corporation’s shareholders must consent to amending the firm’s bylaws to become a B and the nature of the intended good to be done must be specified in the company’s articles of incorporation.
Sure, sure, becoming a B might reduce profits a skosh but, hey, it just might be worth it, especially if some real “players” jump in. God knows, nonprofits can always use a little help and if we’re going to rely on the government to fix all the ills ... well, let’s just say, it might be a long wait.
In most states, B’s passed with bipartisan support but not in Colorful Colorado, where the vote fractured along brittle party lines.
Are Bs the answer? Nope. But it’s a start at least. Hats off to some creative thinking that we all might be at least a little better for.
Want to learn more to become a B? Check out the helpful pamphlet at http://benefitcorp.net/storage/documents/ Coloado_Benefit_Corp_How-To_ Guide_.pdf
It might just “B” the right thing to do.
Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley with the law firm of Stevens, Littman, Biddision, Tharp and Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, divorce and civil litigation. Robbins may be reached at 970-926-4461 or at either of his email addresses, firstname.lastname@example.org or email@example.com.